Section 7(h) of the Natural Gas Act (NGA) and Section 21 Federal Power Act (FPA) respectively vest Federal Energy Regulatory Commission (FERC or Commission) natural gas pipeline certificate holders or hydroelectric licensees with the ability to exercise the federal power of eminent domain to condemn property when the project proponent is unable to acquire necessary rights by contract or negotiation with the property owner. On June 29, the U.S. Supreme Court, in PennEast Pipeline Co. LLC v. New Jersey, No. 19-1039, held that the 11th Amendment of the Constitution does not bar a certificate holder under the NGA from exercising eminent domain to condemn state-owned property. Significantly for hydropower projects, the Supreme Court’s holding also potentially provides clarity that the 11th Amendment is not a bar to the analogous Section 21 provision of the FPA if a hydroelectric licensee must exercise eminent domain over project-necessary state-owned lands.
In 2018, the state of New Jersey resisted PennEast Pipeline Co.’s (PennEast) efforts to use eminent domain (as an NGA-certificate holder) to acquire certain state-owned lands for the FERC-approved pipeline. New Jersey argued that 11th Amendment sovereign immunity should prohibit any such condemnation proceedings and that the state had not consented to suit. In 2019, the U.S. Court of Appeals for the Third Circuit ruled that the NGA did not authorize private companies to sue nonconsenting states and thereby take state property.
In response to the Third Circuit’s decision, in 2019, PennEast filed a petition for Declaratory Order with FERC, asking the Commission to address the scope of the condemnation power delegated to PennEast by NGA Section 7(h). Contrary to the holding by the Third Circuit, FERC determined that the NGA Section 7(h) provides no limiting language for the taking of state-owned property. Moreover, the Commission reasoned that Congress particularly intended to prevent states from blocking certificate holders from constructing FERC-approved natural gas pipelines. PennEast Pipeline Company LLC, 170 FERC ¶ 61,064 (2020). Notably, for hydropower projects, FERC cited to the similar Section 21 provision of the FPA as providing instructive authority for the NGA. FERC explained that the precedent and legislative history of the FPA provide for the use of eminent domain to condemn state-owned property under the FPA and NGA.
Following FERC’s Declaratory Order, PennEast appealed the Third Circuit’s decision to the Supreme Court, arguing that NGA Section 7(h) was specifically enacted to solve the problem of states impeding interstate pipeline development by withholding access to their state-level eminent domain procedures and that the Third Circuit’s decision would have dramatic consequences to pipeline development because, without the federal eminent domain power, a certificate holder had only an illusory right to build. The Supreme Court held that the NGA authorized FERC to provide certificate holders with the ability to exercise the federal eminent domain power, including land in which a state holds an interest. Further, the High Court found that states surrendered their sovereign immunity to condemnations filed by private parties in court exercising the federal government’s power of eminent domain when they ratified the Constitution and that the federal government could delegate its power to condemn state property to private companies.
While the Supreme Court’s decision in PennEast does not specifically analyze the power of eminent domain provided to hydroelectric licensees under FPA Section 21, the Court’s decision now allows for this interpretation of the NGA to confirm that states cannot use their 11th Amendment sovereign immunity to prevent hydropower licensees from exercising their power of eminent domain over state-owned property as authorized under FPA Section 21. Thus, the Court’s resolution of this issue provides clarity for FERC and hydroelectric licensees when exercising FPA Section 21.